India cries wolf: New U.S. visa fees are consistent with international obligations

If you’ve been following the news on immigration in the past month, you may have noticed that the President signed a new border security bill, which appropriated $600 million of additional resources for border enforcement – funded by increased application fees on two types of temporary non-immigrant work visas: the H-1B and L-1. The fees only apply to companies that have 50 or more employees, when more than 50 percent of their U.S.-based workforce is authorized to work under these visas.

Four of the heaviest users of these visas are Indian offshore outsourcing companies – Wipro, Infosys, Mahindra-Satyam and Tata Consultancy Services. The firms and the trade group that represents them are not taking the new fees lightly; they argue the fees are “protectionist” and discriminate against Indian companies under international trade law – and have lobbied the Indian government to take up their cause.

It seems to have worked, because both the Indian Commerce and Industry Minister Anand Sharma and Secretary Rahul Khullar have sent a formal letter of complaint to U.S. Trade Representative Ron Kirk, warning that India and China could join forces in lodging a formal complaint to the World Trade Organization (WTO). They argue that, with respect to temporary foreign workers, WTO rules require countries to fulfill specific commitments they have negotiated (e.g., granting up to 65,000 H-1B visas) and allow the appropriate market access so foreign firms may benefit from them, treating them no less favorably than domestic firms.

Although it appears now that India will hold off on filing a formal complaint to the WTO, at least until after the U.S.-India Trade Policy Forum later this month and President Obama’s visit to India in November (where the topic will be discussed bilaterally), the State Department is now reviewing the matter.

Setting aside for now a discussion about the wisdom of using the new visa fees to further fortify a border that’s more secure than ever (instead of funding oversight and enforcement of visa programs) – I will outline a few good reasons why the Obama administration and Congress should not take these threats seriously.

First, WTO rules do not dictate how its members can or should set immigration policies or fees. In fact, WTO law allows the U.S. to impose new fees and requirements, so long as they do not nullify or impair the benefits countries get from the U.S.’s commitments. Nothing prevents a country from “applying measures to regulate” people entering and staying in the country, “including those measures necessary to protect the integrity of…its borders.”

This is exactly how the new fees work and what they aim to accomplish – they are processing fees which fund border protection and do not reduce the total number of H-1B visas granted or restrict L-1 use in any way. The fee amount, $2000 or $2250, is also reasonable (and even negligible), compared to the profits of these companies and the cost savings they get when hiring H-1B and L-1s. A representative of Infosys confirmed this when he stated he didn’t think the fees “will have any material impact on our financials,” in part because the “fee cost is a mere 0.4 percent of the cost and even doubling the fee will not make much of a difference.”

NAASCOM, the trade group that represents Indian offshoring companies, estimates the total yearly cost to the companies will be $200-250 million. But using NAASCOM’s own estimates on how many visas they use, my calculations reveal that (even using the most liberal estimates), this number cannot be much higher than $100 million (although I predict the actual amount will be much lower), in an industry that grew 5.5 percent and generated $50 billion in revenue just this past year.

Second, and most importantly, the new fees are not discriminatory, because they do not treat Indian companies any less favorably than American firms in a way that would put them at a competitive disadvantage in the marketplace. News coverage has made it seem that only Indian companies must pay the new fees – but this is incorrect. American companies must also pay them if they fall under the purview of the law, and some do: Cognizant (a major player in the industry, with a revenue forecast of $4.46 billion for 2010), Logic Planet (93 percent of its 95 employees have H-1Bs) and DVR Softek (90 percent of 50).

Next, in terms of regulations affecting the use of temporary work visas and individual company composition, India has a credibility gap vis-à-vis the United States. Although any company in the U.S. (large or small) may have 100 percent of its workforce made up of temporary foreign workers on H-1B and L-1 visas, as I detailed in a previous report, India is much more restrictive. New Indian regulations passed in 2009 allow companies operating in India to have no more than one percent of their workers on “Employment visas,” the Indian equivalent of the H-1B and L-1, and that one percent cannot exceed a total of 20 employees.

To achieve a more level playing field for U.S. workers, Congress should pass legislation proposed by Senators Dick Durbin and Chuck Grassley to limit the maximum share of H-1B/L-1 workers in companies operating in the U.S. to 50 percent, or even to set a lower threshold – say 15 percent or 20 percent.

The Economic Policy Institute has documented how the abuse of H-1B and L-1 visas, coupled with minimal governmental oversight or enforcement, has led to the creation of a class of underpaid workers who are indentured to their employers for up to seven years – whom companies prefer and use to replace U.S. workers. The visas also incentivize age discrimination and speed up the outsourcing and offshoring of American jobs.

These are not the results Congress intended when the visa categories were created, but offshoring companies have taken advantage of massive loopholes in the system. That’s why Senator Charles Schumer’s acknowledgement that companies abuse these visas is important – but his assertions that American companies are using these visas “exactly as Congress intended” is incorrect. American companies also underpay these workers and can offshore jobs by setting up subsidiary companies in low-cost countries.

That Indian offshore outsourcing firms feel emboldened to lobby their government about these fees, that the Indian government is willing to risk Indo-US relations by threatening a complaint to the WTO in order to appease them and that the US is concerned – are evidence of two broader problems.

Offshore outsourcing companies have significant political clout in India and will use it to protect a business model that exploits our visa system for cheap labor and sends U.S. jobs overseas. And there is a danger that Congress’s authority to make immigration policy – even for something as basic as setting fees for visa applications, can be restricted and usurped by international trade law and negotiations. Not many people are discussing the latter issue, but it’s happened before, and in 2006, Senator Patrick Leahy and others proposed legislation that would have put a stop to it, but their bill never became law.

In reality, the new fees in the border security bill are a modest attempt to penalize those who abuse the system – but by no means do they represent real reform. India’s threats are part of a preemptive effort to keep Congress from legislating substantial changes to this broken system in the future, perhaps as a part of comprehensive immigration reform.

Although a healthy Indo-U.S. relationship is of vital importance, over this issue the U.S. should not back down, or even flinch, in order to satisfy a few companies that do not have in mind the interests of U.S. workers, jobs or the economy. In fact, last year Indian direct foreign investment (FDI) in the U.S. totaled $4.4 billion– which constitutes only 0.19 percent of total FDI in the country – evidence that Indian businesses are not investing much capital here nor creating many jobs.

U.S. policy makers should take the next step and fix the legal framework for the H-1B and L-1 visa programs while creating an effective system of oversight and enforcement to penalize those who game the system to the detriment of U.S. workers.

Daniel Costa is an immigration expert for the Economic Policy Institute.